Dollar poised to snap 5-week losing streak as Fed cuts bets Reuters

By Kevin Buckland

TOKYO (Reuters) – The dollar traded near a one-week high against peers on Friday, poised to snap a five-week losing streak, after strong economic data reduced bets for aggressive interest rate cuts by the Federal Reserve.

The euro remained near a two-week low against the dollar as falling inflation in Germany and Spain boosted the case for European Central Bank easing.

The yen held near the closely watched 145 per dollar level after weakening on Thursday, while the greenback watched for a rise in US Treasury yields.

The Japanese currency largely ignored data on Friday that showed core consumer prices in Tokyo rose a faster-than-expected 2.4 percent in August, again beating the Bank of Japan’s 2 percent target, though a measure that also excludes energy costs increased by only 1.6%.

Overnight, US data showed gross domestic product (GDP) grew at an annualized rate of 3.0% in the second quarter, an upward revision from the 2.8% rate reported last month. Economists polled by Reuters had expected GDP to be unrevised.

“That was the market driver from overnight price action, particularly when you look at currencies and US Treasury yields,” said Rodrigo Catril, senior FX strategist at National Australia Bank (OTC: ), referring to the GDP reading .

“The best thing there – the bottom line – is that the consumer was stronger than previously thought,” he added. “US exceptionalism was still evident in Q2”.

Traders are now more strongly in favor of a quarter-point Fed rate cut on September 18, setting just 34% odds of a 50 basis point (bp) cut, down from 38% a day earlier, according to CME Group’s (NASDAQ:) FedWatch Tool.

The value – which measures the currency against a basket of six major bets – was little changed at 101.34 at 0032 GMT, after rising 0.36 percent on Thursday to hit its highest since Aug. 22 at 101.58.

It is on track to rise 0.66% this week, which would be its best week since early August and snap a five-week losing streak. However, August is slated for a 2.6% drop, which would be the worst month since November.

The dollar fell 0.14 percent to 144.78 yen after rising to 145.55 overnight for the first time since Aug. 23.

The euro was steady at $1.1082 and fell to $1.10555 on Thursday. Later in the day, more consumer inflation readings are due across Europe, including France, Italy and the euro zone as a whole.

The United States also has the release of the Personal Consumer Expenditure (PCE) price index, the Fed’s preferred gauge of inflation.

Sterling was steady at $1.31655 after falling to $1.3146 overnight for the first time since August 23.